To all of those who don’t know, let me clarify what a trailing stop is: A trailing stop allows me, a trader, to place a preset order when a large callback occurs. I can use it for selling when the market falls from a higher point, or for buying when the market rebounds from the bottom. Once the callback rate and the activation price are met, the strategy will be triggered to place a limit order. A Pre-set price (e.g.: Optimal N or Formula Price) is used in this case.
Why use trailing stops on Huobi Futures?
I have chosen Huobi Futures as my preferred platform for executing various types of trades for the pronounced benefits it possesses over its peers.
- A robust risk-control system: Huobi Futures features a three-phase liquidation protection mechanism and has held the record for zero clawback for 752 days since its launch in December 2018.
- Innovative functions: Huobi Futures possesses some of the most innovative features in the industry such as take-profit/ stop-loss, real-time settlement, locked-margin mechanism, Follow a Maker & Taker and much more. It also allows users to switch leverage with positions held as long as there is no open order.
- Trading Volume: Huobi ranked No. 1 in trading volume in the world last year, which was up to $2.3 trillion with an average of 6.3 billion traded per day. Its trading volume is at the forefront of the derivative market. Its USDT-margined swaps recorded a cumulative trading amount exceeding $177.8 Billion in just two months after its launch.
Before I dive into how I used trailing stops in Huobi Futures, certain parameters should be explained in brief.
- Activation Price: It is one of the conditions that trigger the strategy and has a direct relationship with the latest price.
- Amount: The amount of money to be placed for a limit order once the strategy is triggered.
- Callback rate: This is another one of the conditions to determine whether a strategy will be triggered. The callback rate shall be greater than 0, and for sell orders, the call back rate shall be greater than 100%.
- Direction: This is the buy/sell direction of a limit order after the strategy is triggered.
- Order price type: This refers to the price type of a limit order.
- Formula price: It refers to one of the price types that users can use to place a limit order after the trailing stop is triggered.
It is calculated as:
[ The highest price x (1-Callback rate)] or [The lowest price x (1+Callback rate)]
Lowest/Highest price: This refers to either the lowest or the highest price from the time of setting up the strategy to when it has been triggered.
Certain trigger conditions exist for both Buy and Sell directions:
- For Buy:
Condition 1: The activation price shall be greater than/equal to the lowest price;
Condition 2: [ The lowest price x (1+Callback rate)] shall be less than/equal to the latest price.
- For Sell:
Condition 1: The activation price shall be less than/equal to the highest price;
Condition 2: [ The highest price x (1-Callback rate)] shall be greater than/equal to the latest price.
How you can benefit from using Trailing Stops on Huobi Futures
Huobi Futures allows me to place trailing stops when using USDT-margined swaps. Huobi USDT-margined swaps support 1x-125x leverage and are settled in USDT. At the time I traded, BTC was valued at 50,000 USDT(Tether). After much analysis, I predicted that BTC would slip down to 48,000 USDT. So, I decided to purchase 100 conts of long position by entering the following parameters:
- Order price type: Optimal 5
- Callback rate: 2%
- Direction: Buy
To do this, I clicked “Trailing Stop” on the Huobi interface and set the activation price at 48,000 USDT with the callback rate of 2%. After that, I entered the amount of 100 conts and chose Optimal 5 as the price. Finally, I clicked “Open Long” to place the order.
At one point BTC/USDT swap price declined to the lowest point of 47,600 USDT, which was lower than the activation price I set at 48,000 USDT. This met my first trigger condition as discussed above. Soon after, the price rebounded to 48552 USDT, which satisfied the set callback rate 2% (48552/47600 -1). With this, my 2nd trigger condition was met as well. subsequently the system purchased 100 conts of a long position with the price of Optimal 5 after the strategy had been triggered.
Finally, I checked Positions and found the order was filled at 48,600 USDT. Then after one week the market price rose to 53,000, I sold these 100 conts of swaps with the BBO price and gained (53,000-48,600) * (0.001*100) = 4400*0.1=440 USDT. And all my transaction fee was 48,600*0.001*100*0.02%+53,000*0.001*100*0.04%=0.972+2.12=3.092 USDT. Therefore, my total profits gained from this trailing stop strategy was 440-3.092=436.9 USDT.